Wednesday, October 24, 2012

Startups & Miracles

You know a startup is likely to fail when its product strategy or business plan includes multiple miracles.

What Is A Startup Miracle?
A startup miracle is the key difficult thing you need to pull off for your startup to work.

It could be hitting product/market fit, a key business deal, a specific regulatory change, or the like. If your startup needs zero miracles to work, it probably isn't a defensible startup. If your startup needs multiple miracles, it probably isn't going to work - with every miracle, you are multiplying in another low probability event to get an even smaller expected outcome.

Single Miracles Are Hard To Pull Off
Miracles are by their nature difficult to achieve. Every successful startup has at its heart a miracle. For AirBnB, it was getting to market liquidity in supply/demand for rooms & spaces in a repeatable way. For Microsoft, it was the IBM O/S deal. Most startups die before they ever attain their miracle.

Multiple Miracles Should Be Avoided
Entrepreneurs often fail when they define an end goal and then come up with a multi-step, multi-miracle driven logical chain to get there.

An example would be: Our goal is to become the replacement for Yelp.Step 1: Launch a mobile app, focused on concerts and music. We plan to get to massive distribution for this mobile music app. (Miracle #1)Step 2: Once we have millions of users using us for concerts, we can add other types of local content, including businesses. Since we have millions of users, they will undoubtedly use us for local content as well (Miracle #2). This will allow us to beat Yelp.

In this example, the concerts product has nothing to do with beating Yelp. It is viewed as a leverage point to get to the situation where, maybe, you could add a Yelp-like product. Given how hard it is to get to any sort of product/market fit, the company is likely to die trying to win at concerts. It will never get to the point it can try to overcome another obstacle and compete with Yelp. The first miracle is likely to kill the company before it can even try to fulfill the second miracle.

This is very different from "we are going to beat Yelp by providing a better local content experience on mobile" and then focusing excruciatingly on this singular goal. Product/market fit is still equally hard to achieve, but you only need to achieve it once.

Only Work On Single Miracle Startups
If your startup needs multiple miracles to succeed, you need to go back to the drawing board and come up with an idea or product that has only one miracle. Otherwise you are multiplying out multiple low probability events and are extremely likely to fail.

Many people delude themselves on whether they are a one-miracle, or multi-miracle startup. They way to tell is to ask yourself what your product or business end goal is. Is your approach directly focused on achieving that end goal? If not, you may have a multi-miracle plan without realizing it.